Monthly Archives: August 2015

New “Joint Employer” Ruling from NLRB

200px-US-FLRA-Seal.svgThe National Labor Review Board, which ruled that McDonld’s is a joint employer with its franchisees, has handed down another decision which could affect franchisees. In the new ruling, a waste control company was designated a joint employer with the staffing company that provides them with workers.

The waste management company, said the NLRB, is responsible for the staffing company’s violations of labor rules.

Outcry against the ruling from various business organizations, which pointed out that the ruling essentially says that two separate independent companies are here being counted as the same company in terms of their compliance with regulations.

If the staffing company broke the rules, the waste management company also broke the rules, even though the two companies have no deeper relationship than that of a service being provided to a customer.

There is precedent, but it’s hardly identical. For example, retailer Walmart requires its suppliers to make sure the factories they work with follow all labor laws. This decision, made after deaths at a Bangladeshi clothing factory made headlines, doesn’t imply that the Walmart suppliers are joint employers of the oppressed factory workers in Bangladesh. It requires Walmart’s partners to pay attention to the manufacturers they partner with.

The NLRB didn’t say that the waste management company should have turned in the staffing company, nor that they should take responsibility for the companies its trades with. They said the two unrelated companies are joint employers.

Some business organizations are saying that the NLRB is trying to redefine the employer-employee relationship in ways that make it easier for workers to unionize.

The NLRB claims that it is trying to keep up with a rapidly changing world. The traditional employer-employee relationship, in which a single company hired a single worker and took responsibility for that worker from apprenticeship-style training through their pension, is gone. 2.78 million people work as independent contractors, franchises are growing faster than independent businesses, and temp and other staffing agencies (some of which are franchise businesses) employ some 3 million Americans.

The NRLB says that workers now need to be able to negotiate not with their apparent employers, but with the larger company that holds the purse strings, whoever that might be. Unions agree.

So it is no longer necessary for a company to oversee another company’s workers directly. It is enough that they could do so. Subcontractors such as roofers who work with a general contractor to build a house could now be the responsibility of the general contractor when it comes to their workers.They don’t oversee the roofers’ workers, but they could come around the worksite and interfere if they chose to.

Business organizations wonder whether there might be unintended consequences. Franchises have come up in the conversation, of course. If a franchisor could make decisions for a franchisee, even if they don’t, they might leave themselves open for prosecution if their franchisees violate labor laws. And they could be required to negotiate with their franchisee’s workers, and the franchisee would be bound by the decisions they negotiate.

Will franchisors give up franchising because of their exposure under the new law? Will people choose franchises instead of independent businesses in order to share responsibility? Will the whole question just hasten the use of automation in place of human workers?

It’s impossible to say at this point, since the ruling is likely to head for the Supreme Court. We’ll keep you posted.

 

What Your Franchise Fees Pay For

Puerto Rico High Resolution Money Sign Concept

Puerto Rico High Resolution Money Sign Concept

Investing in a franchise business is not exactly like buying an independent business. When you buy a business, you’ve made a purchase, and once you’ve paid for that purchase, you’re probably through with the people you purchased that business from. You’ve got their customer list, their intellectual property and trademarks, and the building and fixtures. It’s yours.

With a franchise, you pay initial fees for the right to use the trademark and other intellectual property, and for ongoing support of various kinds, which vary from one franchise to another. You also pay ongoing fees. These fees include royalties and perhaps also a marketing fee that is pooled with the marketing fees of other franchisees.

What do you get for the ongoing investment?

  • R&D. Research and development results in new products, new services, improvements in the system, and great ideas. Top companies spend anywhere from 3% to 17% of sales, according to Business Insider, and that’s a gamble your individual franchise probably couldn’t take. A small independent business will always find it challenging to develop new products, and often there is no testing when they do come up with a new idea. They just throw it out there and hope people are willing to pay for it. Franchisees get to take advantage of the R&D capability of a large corporation.
  • National marketing. The cost of shooting a single high-quality commercial ranges from $63,000 to $8,000,000 dollars, according to a recent study, and the cost of national broadcasting time is over $10,000 per second. National magazine ads run $250,000 for placement in a monthly magazine and anywhere from $500 to nearly $400,000 for creation of the ad. Small independent businesses can’t afford national advertising. Your individual franchise probably wouldn’t be able to hire a celebrity and create a major national ad campaign, either, but your franchisor may. You and all the other franchisees benefit from that investment. You also benefit from all those years of marketing the franchise has done before you even joined the team.
  • Ongoing support. Being in business for yourself is challenging, exciting, fun, and rewarding. Many independent business owners, however, have no one to reach out to when they have questions or concerns. Franchisees have not only the franchise, but also the franchisee community. Being able to ask advice from others who are in the same position you’re in can be extremely valuable. Getting input on how to use a system from others who use it and from the people who developed it has value that’s beyond measuring.

Each franchise approaches these three things differently. Yours might have intensive research and development that means new products every season, combined with extensive marketing that brings new customers in to enjoy every new product, and an annual convention that sends you back to work informed and inspired. Or your franchise might invest in market research reports and share that knowledge, provide ad slicks for you to use in local media, and have a number to call when you need support.It makes sense to ask, and to evaluate ongoing costs in light of what they’re paying for.

 

Your Franchise Competitors

competition1As you consider a variety of franchise business investment opportunities, you’ll think about what you want to do, what you can afford, and what kind of company fits with your values and lifestyle. You should also scope out the competition.

Do you see a landscaping business doing well? That may or may not mean that another landscape will do equally well.

But seeing that your town already has a landscaping business doesn’t mean that it can’t support another.

You need to know how many competitors you have, relative to the size of the target market in your town. You need to know how many of your competitors offer the same goods and services you do, and how well they’re meeting the needs of the target market. You need to know how the franchise you’re considering is different from the local competing businesses.

That means research.

Here are some online tools that can help you find out details about your competitors:

  • Manta, a small business directory, includes guesses about the number of employees and the revenue for most businesses in your town, including franchises. This is a good way to get a working list of competitors. Note how long the companies have been around and see how many are well established and well funded.
  • Depending on your town, the local Chamber of Commerce may also give you a good working list. However, companies must join the Chamber to be listed, so you probably won’t find all the competing shops by this method. You probably won’t find inside information this way, either, but it can be a good way to build your list.
  • If you’ve never heard of the competing companies before, start with the SEC filings. Publicly held companies must file, and their documents are public.
  • Yelp is a review site. They won’t give you much inside information on your competitors, but they will tell you who your competitors are, and share some of their customers’ frustrations. If there are 12 well-loved businesses in your town that all offer exactly the same goods and services as the franchise business you’re considering, you can expect a tougher fight than if there’s just one and it has plenty of negative reviews. Yelp can also help you identify underserved markets.
  • Owler is a company information website that crowdsources data about funding, aquisitions, social media, and company CEOs. While many companies have little information available at Owler right now, it keeps track of information that other websites don’t. It also groups competitors, so you may be able to to find competitors you weren’t aware of to add to your list.
  • Spyfu is an online-only tool that gives you estimates of website’s traffic and rankings for specific keywords. Thinking of opening a sandwich shop in Milwaukee? Spyfu will help you determine which existing sandwich shop dominates web search for terms like “Milwaukee sandwich shop.” It also tells you, through the ads competitors have bought, how they want to be seen. Sometimes online competitors are different from the physical-world competitors, so this tool can show strengths and weaknesses you might not see elsewhere.

Go visit the businesses on your list, too, or call to get a sense of their customer service. This will give you a clearer understanding of the competitive field.

Franchise Cash Flow Questions

One of the most common complaints among people who have invested in a franchise business is that they aren’t earning enough, that they worry over meeting payroll and bills, or that they don’t have the sales they expected.

As with so many franchise business problems, cash flow issues are often caused by a failure to look ahead. Investing in a franchise business can be exciting, and seeing the kind of revenue other franchisees take in may be enough for you to feel confident that you’ll earn what you need.

But cash flow can be a concern even for a successful business.

Here are some of the cash flow issues you should think about before you decide which franchise to buy:

  • There may be time between when you make the investment and when you begin to bring in revenue. You will need to find a location and you may have construction or renovation costs to bring the space up to meet the requirements of your franchisor and to get it ready to open the doors. There will often be hiring, training, and marketing costs before you open, too. And a new business may take a while to become profitable, not because it’s a bad business but because it takes time to build a clientele. You have to be sure that you have enough capital to pay the costs of doing business, plus savings or another source of income to live on during this time.
  • You may be focusing on revenue without being fully aware of costs. Revenue that comes into the business has to cover the cost of franchise fees, which are usually a percentage of the revenue, plus all the costs of running the business. That may include wages for staff, the cost of materials, and the fixed overhead costs like rent on a building, electricity and other utilities, marketing fees, and much more. There are other costs that you might not be aware of if you haven’t run a business before. For example, “shrinkage” is the cost of spoiled food or damaged products as well as shoplifting and petty theft. Most businesses have to deal with some losses of this kind. Employee turnover can also lead to unexpected costs such as additional training, extra uniforms, and the time and money involved in advertising for, interviewing, and hiring new workers. Be sure that you understand all the costs involved in the business you’re considering.
  • Money may be tied up in inventory or other expenditures. It’s important to keep enough stock on hand in a retail business and a restaurant has to have enough food and drink on hand. A service business may end up putting a lot of cash into decorating an office, buying business machinery, and paying fees for associations. However beneficial for the business in the long run, these costs can make it hard to meet payroll or other cash needs in the short run. Balancing these costs with the need for cash on an ongoing basis can be challenging, especially for a new business.

Going into your franchise business with a realistic understanding of the costs and revenue make it easier to be sure that you don’t have any nasty surprises when it comes to cash flow.